Welcome to our comprehensive guide about cash out refinance VA Loan. If you’re a veteran or service member who wants to tap into your home’s equity, this financial move might be the right one for you. By the end of this article, you’ll understand the benefits and drawbacks of a cash out refinance VA loan, requirements and eligibility criteria, and how it works.
What is Cash Out Refinance VA Loan?
A cash out refinance VA loan is a mortgage refinancing option designed for eligible veterans and military members looking to refinance their current mortgage while borrowing more than their outstanding loan balance. A cash out refinance can provide veterans with cash that can be used to pay off high-interest credit card debt, make home improvements, or cover other expenses.
Unlike other refinancing options, a cash-out refinance replaces your existing mortgage with a new one that is for more than you owe on your home. For example, if you owe $150,000 on your mortgage, and your home is worth $200,000, you could refinance $175,000, taking out the extra $25,000 in cash.
How Does Cash Out Refinance VA Loan Work?
When you take out a cash-out refinance VA loan, the new mortgage lender will pay off your old mortgage, and you’ll receive the cash difference in a lump sum. The new loan will have different terms than your old one, including a new interest rate, loan term, and monthly payment amount.
The VA guarantees a portion of the cash-out refinance VA loan, allowing lenders to offer lower interest rates and better terms. Also, if you’re an eligible veteran with a service-connected disability, you may not have to pay the VA funding fee.
Benefits of Cash Out Refinance VA Loan
There are several benefits to obtaining a cash-out refinance VA loan, including:
- Access to Cash: A cash-out refinance can provide you with a lump sum of cash that can be used however you want, such as home improvements or paying off high-interest debt.
- Lower Interest Rates: Because the VA guarantees a portion of the cash-out refinance VA loan, lenders may offer a lower interest rate than on a traditional loan.
- No Private Mortgage Insurance: If your new loan amount is less than 80% of the home’s value, you won’t have to pay private mortgage insurance (PMI).
- Flexible Repayment Terms: Cash-out refinance VA loans offer flexible repayment terms, allowing you to spread out your payments over a more extended period or pay off your mortgage faster.
Drawbacks of Cash Out Refinance VA Loan
While a cash-out refinance VA loan can be a useful tool for accessing your home’s equity, there are also some disadvantages to consider:
- Higher Fees: Because a cash-out refinance VA loan involves obtaining a new mortgage, you’ll have to pay closing costs, origination fees, and other fees associated with refinancing.
- Longer Loan Term: A cash-out refinance VA loan may extend the term of your mortgage, which means it could take longer to pay off your loan.
- Higher Interest Rates: While VA-backed loans typically have lower interest rates, cash-out refinance VA loans may have a higher interest rate than a traditional VA loan.
- Risk of Foreclosure: If you can’t make your mortgage payments, your home could be foreclosed upon, just like with any other mortgage.
How to Qualify for Cash Out Refinance VA Loan?
To qualify for a cash-out refinance VA loan, you’ll need to meet specific eligibility criteria set forth by the VA. Here are some of the requirements:
- A minimum credit score of 620: While there is no set minimum credit score, most lenders will require a credit score of at least 620 for a cash-out refinance VA loan.
- Occupancy: You must currently occupy the home being refinanced or have done so in the past.
- Loan-to-value ratio: The loan-to-value (LTV) ratio, which is the amount you want to borrow compared to the value of your home, must be no more than 90%.
- Employment and Income Verification: You’ll need to provide proof of employment and income to demonstrate that you have the means to pay back the loan.
Cash Out Refinance VA Loan Rules
Here are some of the VA rules regarding cash-out refinance VA loans:
- VA Loan Entitlement: You must have enough VA loan entitlement to cover the amount of the cash-out refinance loan you’re seeking.
- Primary Residence: You must certify that you intend to occupy the home as your primary residence.
- Seasoning Requirements: If your existing mortgage is a VA loan, you’ll need to wait at least 210 days from the date of your first payment before you can refinance.
- VA Appraisal: You’ll need to have the home appraised by a VA-approved appraiser to determine its value.
Complete Information About Cash Out Refinance VA Loan
Here is a table that summarizes the essential details about cash-out refinance VA loans:
Loan Type |
Cash-Out Refinance VA Loan |
|---|---|
Qualification Criteria |
620 Credit Score, 90% LTV |
Use of Funds |
Home Improvements, High-Interest Debt, Personal Expenses |
Interest Rate |
Usually Lower Than Conventional Loans |
VA Funding Fee |
May Be Waived for Veterans with Service-Connected Disabilities |
Repayment Term |
Flexible |
Loan Amount |
Up to 100% of Home’s Value |
VA Loan Entitlement |
Must Have Enough to Cover Cash-Out Refinance Loan |
Occupancy Requirements |
Primary Residence Only |
Cash Out Refinance VA Loan FAQs
1. What is the VA funding fee for a cash-out refinance VA loan?
The VA funding fee for a cash-out refinance VA loan is typically 2.3% of the loan amount for first-time use and 3.6% for subsequent use. However, if you’re a veteran with a service-connected disability, you may be eligible for a funding fee waiver.
2. How much equity do I need to qualify for a cash-out refinance VA loan?
You must have at least 10% equity in your home to qualify for a cash-out refinance VA loan. However, most lenders will require an LTV ratio of no more than 90%.
3. How long does it take to close on a cash-out refinance VA loan?
The closing process for a cash-out refinance VA loan can take anywhere from 30 to 45 days, depending on the lender and the complexity of your application. However, some lenders may offer a faster closing time.
4. Can I use the cash from a cash-out refinance VA loan for anything?
Yes, you can use the cash from a cash-out refinance VA loan for any purpose, such as home improvements, paying off high-interest debt, or covering personal expenses.
5. Can I get a cash-out refinance VA loan if I have a second mortgage on my home?
You may be able to get a cash-out refinance VA loan if you have a second mortgage on your home, but you’ll need to work with your mortgage lender to determine the best course of action.
6. How much can I borrow with a cash-out refinance VA loan?
You can borrow up to 100% of your home’s value with a cash-out refinance VA loan, but most lenders will cap the loan amount at 90% of the home’s value.
7. Can I get a lower interest rate with a cash-out refinance VA loan?
While VA-backed loans typically have lower interest rates, cash-out refinance VA loans may have a higher interest rate than a traditional VA loan.
8. Can I roll my closing costs into my cash-out refinance VA loan?
You may be able to roll your closing costs into your cash-out refinance VA loan, but you’ll need to work with your mortgage lender to determine the best course of action.
9. Is there a prepayment penalty for a cash-out refinance VA loan?
No, there is no prepayment penalty for a cash-out refinance VA loan.
10. What documents do I need to apply for a cash-out refinance VA loan?
To apply for a cash-out refinance VA loan, you’ll need to provide documentation of your income, employment, credit score, and other financial information. You’ll also need to provide proof of occupancy and eligibility.
11. Can I get a cash-out refinance VA loan if I have bad credit?
While there is no set minimum credit score for a cash-out refinance VA loan, most lenders will require a credit score of at least 620. If you have bad credit, you may still be able to qualify for a cash-out refinance VA loan, but you may need to work with a lender who specializes in lending to those with low credit scores.
12. How often can I get a cash-out refinance VA loan?
There are no limits on how often you can get a cash-out refinance VA loan, but you’ll need to meet the eligibility requirements each time you apply.
13. Can I use a cash-out refinance VA loan to pay off my student loans?
Yes, you can use the cash from a cash-out refinance VA loan to pay off your student loans, but you’ll need to work with your mortgage lender to determine the best course of action.
Conclusion
A cash-out refinance VA loan can be an excellent financial move for veterans and military members who want to tap into their home’s equity. By understanding the benefits and drawbacks of this financing option, the requirements and eligibility criteria, and how it works, you’ll be better equipped to make an informed decision about whether it’s right for you.
At the same time, it’s essential to carefully consider the risks and costs associated with a cash-out refinance VA loan before making a decision. With this guide, you’ll have all the information you need to make the right decision for your financial situation.
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If you’re ready to take the next step and explore your cash-out refinance VA loan options, we’re here to help. Contact us to learn more about our VA loan options and how we can help you get the financing you need.
Disclaimer
The information contained in this article is for informational purposes only and does not constitute professional advice. You should consult with a qualified professional for advice regarding your specific situation. We do not guarantee the accuracy, completeness, or usefulness of any information provided in this article and shall not be held liable for any errors, omissions, or inaccuracies. Any reliance you place on such information is strictly at your own risk.